Gold’s record surge: Boom, bust, or just the beginning?
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# Gold’s record surge: Boom, bust, or just the beginning?
###### By Munaf Mukadam - Gradidge-Mahura Investments
## Gold’s record surge: Boom, bust, or just the beginning?
Explore expert insights on gold price trends, market drivers, and future forecasts. This in-depth article, written by[** Munaf Mukadam at Moneyweb**](https://www.moneyweb.co.za/financial-advisor-views/golds-record-surge-boom-bust-or-just-the-beginning/), is shared here to keep our readers informed about the latest developments in the gold market.A look at the forces driving the latest gold rush and what the future might hold.
Over the past 12 months, the gold price has surged around 40%, reaching an all-time high and, at the time of writing, nearing the $3 000 per ounce mark. This gold rush has sparked fears of a potential gold shortage.
Is the world really running out of gold? Do central banks actually hold the reserves they claim, or is it all just paper trading? And after such a strong performance over the past 12 months, what lies ahead for gold? Let’s break down the forces driving this gold rush and explore what the future might hold.
Beyond speculation and FOMO, which often contribute to a price surge as investors jump in to ride the wave and capture some of the gains for themselves, there are several fundamental factors that have fuelled this historic rally:
### 1. Inflation and global economic uncertainty
Unsustainable fiscal policy and ballooning debt from government spending and money printing by central banks have caused higher-than-average inflation levels, which continue to be a concern. Additionally, geopolitical tensions are also playing a major role. The conflict in the Middle East, the war in Ukraine, and the risk of tariffs are all contributing to the uncertainty. In turbulent times, gold has always been the go-to safe-haven asset, and investors are rushing to protect their wealth.
### 2. Central bank demand at record levels
Asia has been the biggest buyer of gold over the past 12 months. The People’s Bank of China (PBoC) has been aggressively accumulating gold, aiming to reduce its reliance on the dollar. It purchased 44 tonnes of gold in 2024. India, meanwhile, accumulated 72 tonnes, Turkey 75 tonnes, and Poland led the charge, increasing its reserves by 90 tonnes in 2024. In total, central banks around the world collectively accumulated over 1 000 tonnes of gold in 2024, making this the largest accumulation spree in recent history. The World Gold Council suggests that central banks are unlikely to slow down. According to some reports, around 70% of central banks plan to increase their reserves in 2025.
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### 3. Gold liquidity squeeze
One of the lesser-known but critical drivers of gold’s surge is a liquidity squeeze. The Bank of England (BoE) is the world’s second-largest custodian of gold after China. More specifically, there are nine underground vaults in London, holding between 8 000 and 9 000 tonnes of gold, worth around $771 billion. Since US President Donald Trump was re-elected in November, political uncertainty and fear of tariffs have resulted in many banks wanting to move their gold reserves from London to gold hubs in the US, such as New York. While 25% tariffs have been applied to other metals such as steel and aluminium, at the time of writing, no tariffs have been placed on gold.
However, the fear of potential tariffs seems enough, as an estimated 8 000 bars have been moved from London to New York. This equates to approximately 2% of the total gold held by the BoE. HSBC and JP Morgan are two such large institutions that have been moving significant quantities of gold.
Further complicating matters, gold futures contracts on the COMEX have been consistently trading at a premium to the spot price since Trump’s election. The COMEX, or the Commodity Exchange, based in New York, is a marketplace for trading metals like gold, silver, and aluminium. It’s the world’s largest derivatives market and one of the most active markets in the world.
Banks use the COMEX for hedging strategies, and this unexpected pricing gap has effectively broken their hedging strategy. The short of it is that banks either have to sell their futures contracts at a loss or deliver gold against these contracts. Banks would rather avoid the loss and so the latter option is preferable.
This requires gold to be moved to the US, but logistically, moving large quantities of gold is not an easy task. It is a massive undertaking that requires physical resources and security. Bank vaults are not designed for sudden large-scale movements, and so this has caused a significant bottleneck. These delays have caused speculation of a gold shortage and have driven gold prices even higher, creating a feedback loop.
The higher the prices go, the more banks want to move their gold, clogging the system even further. While it is not entirely true to say there is a gold shortage, there does clearly seem to be a shortage when it comes to gold liquidity.
### What lies ahead for gold?
2025 is set to be a pivotal year for gold because production is forecast to decline. From a supply side, ageing mines are closing down. Ore grades, which are the concentration of gold within an ore, are declining, making it more expensive to extract the same amount of gold. Some mining companies are closing down due to increased labour and regulatory costs. Some analysts predict that these challenges could cause gold production to fall by 17% by 2030. On the demand side, it appears to be ever-growing. Aside from gold being a safe-haven asset during uncertain economic periods, there are some use cases, too. Tech companies use gold for its superior conducive properties, making it a key component in electronics. Gold is also used for medical implants and diagnostic tools due to its non-reactive and non-toxic properties. Space exploration is another use case – due to its resistance to corrosion, gold is used on satellite components.
Price projections for 2025 vary, ranging from around $2 300 to $3 500 per ounce. Union Bank of Switzerland (UBS) projects gold will hit a peak of $3 200 per ounce. Goldman Sachs Analysts state that if uncertainty regarding economic policy continues, including tariffs imposed by the US, then they forecast a price of $3 100 per ounce. On the higher end of the range, an analyst from Bank of America predicts gold could reach $3 500.
On the lower end, Citi Group predicts a price range of $2 800 to $3 000. HSBC projects a range of $2 350 to $ 950 and Commerzbank forecasts that gold will fall to $2 600 per ounce.
### Final thoughts: Boom or bust?
The future of gold hinges on several unpredictable factors. Considering that a significant driver behind the surge in the gold price is driven by uncertainty, we could expect lower gold prices if investors get more clarity. If a resolution is reached between Russia and Ukraine and if Trump confirms that no tariffs will be applied to gold, this would reduce the flow of gold into the US and would likely weaken demand for the yellow metal, leading to lower prices. Conversely, if inflation remains stubbornly high and geopolitical risks persist, gold could continue its climb.
So, it’s a mixed bag and no clear direction. Whether gold continues its ascent or takes a breather, history has shown that it will always have a place in a well-balanced portfolio. The best approach? Diversify wisely and align your asset allocation to your objectives.
## FAQs: Gold’s record surge: Boom, bust, or just the beginning?
1. Why has the gold price surged so much in the past 12 months?
Gold prices have risen about 40% due to a mix of high inflation, geopolitical tensions, record central bank buying, and a gold liquidity squeeze caused by banks moving reserves from London to New York.
2.Is there a global gold shortage?
There’s no shortage of gold overall, but there is a *liquidity shortage*. This means there’s limited access to physical gold in certain locations due to logistical bottlenecks, which is pushing prices higher.
3.Why are central banks buying so much gold?
Central banks, especially in Asia and Eastern Europe, are buying gold to diversify reserves, reduce reliance on the US dollar, and protect against currency risks. In 2024, they collectively purchased over 1,000 tonnes.
4.How do geopolitical events impact gold prices?
Conflicts such as the war in Ukraine, tensions in the Middle East, and trade tariff risks increase uncertainty, prompting investors to flock to gold as a safe-haven asset.
5.Should investors buy gold now?
Gold works best as part of a diversified portfolio. Whether to buy now depends on your risk tolerance, time horizon, and market outlook